Wednesday, December 17, 2008

Should the rest of Canada care if the the Big 3 fail?

The Ontario Manufacturing Council (OMC) released a report yesterday (completed by the Centre for Spatial Economics) that showed that the complete failure of the Big 3 in Ontario would mean the loss of about 580,000 jobs in five years. A 50% reduction in Big 3 output would translate to approximately 300,000 jobs lost. Now, while the OMC and the Ontario Government were careful to stress that these losses would be felt across Canada, the report shows that 90% of the job losses would occur in Ontario alone.

That Ontario could lose over half a million jobs in one of its most important industries and the Canada wide effects would be only 60,000 jobs lost over 5 years seems incredible. Moreover, the 580,000 number is the high-end of the estimate and from what I can tell, that scenario assumes that foreign car makers do not set-up in Ontario to replace lost domestic production.

So should the rest of us (non-Ontarians) be calling for a bailout or would the failure of the Big 3 merely cap the long downward spiral of Ontario manufacturing? That is, has the rest of Canada decoupled from Ontario? Recent trends in unemployment rates seem to suggest so.

However these trends may be deceiving. A lot of employment in the West has been a product of the commodity boom, and therefore recent trends may represent a cyclical rather than a structural change. Moreover, the economy is in a particularly fragile state and a shock of this magnitude, even if it seems to be localized in Ontario, may have other adverse effects. Hmm...does this mean I've talked myself into an auto-bailout?

Half milion...when it's said like this, it sounds as a complete disaster for Ontario. But I don't believe it. Big company, let's say like GM, can't go bankrupt "just so". I mean, they just don't turn off the lights, switch off the machines and lock the door during night. Bankrupt would probably cause, that some parts would be sold, some restructured, some closed. Pouring money inside never saved the day...Take care and marry ChristmasLorne

Yes the rest of Canada should worry if Ontario unemployment gets too high. I don't necessarily think bailing out the big-3 is the best way to make work.The American consumer market will probably undergo contraction/plateau for a few years and there are many Canadian Crowns/companies that could use the cash in the future. In a triage of employment intensive and growing sectors, big-3 autos are middle of the pack at best.

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